TLDR

You want to provide the best mobile ordering experience for your customers while also managing your coffee shop’s finances responsibly. Upfront payments from mobile orders seem great as they add to the revenue stream, but handling them may appear daunting. However, with proper planning and integration into your existing financial processes, you can manage these funds responsibly and provide a seamless experience for your customers. In this article, we’ll explore best practices for managing your company's finances from mobile app prepayments like e-gift cards, subscriptions, and store credits. You’ll learn tips for setting up dedicated accounts, tracking funds, and more. With the right approach, you can deliver mobile ordering convenience customers love while maintaining order behind the scenes.

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Why Upfront Payments Need Special Handling

As a business owner, you need to handle upfront payments from your mobile app with care. These funds represent obligations to your customers that you must fulfill. If mismanaged, they can lead to loss of goodwill, legal issues, and even financial troubles.

Create a Separate Account

The best approach is to deposit upfront payments into a separate bank account dedicated solely to this purpose. This makes the money easy to track and prevents it from being mingled with general operating funds. From this account, you can make refunds, honor gift cards and subscriptions as customers redeem them, and transfer surpluses to your operating account.

Maintain Accurate Records

Carefully record details of every upfront payment, including the customer, payment method, and purpose of the payment. These records will allow you to verify legitimate refund and redemption requests, spot fraudulent ones, and track your overall upfront payment liabilities and surpluses. They should be frequently reconciled with your bank statements to catch any discrepancies quickly.

Plan for Redemptions

Project how upfront payments will likely be redeemed over time based on your historical data and industry norms. These projections will help ensure you have enough funds on hand to meet redemptions, even during slow periods. If redemptions significantly exceed projections, you may need to temporarily restrict upfront payments to avoid cash flow issues. Planning and monitoring are key to responsibly handling upfront payments.

Refund Promptly If Needed

While most upfront payments will be redeemed as intended, some customers may request refunds. Have a clear refund policy and process in place, and issue refunds promptly to maintain good customer relations. Refunds should be made from your separate upfront payment account to keep an accurate record of your total obligations.

With organization, oversight, and prudent management, upfront payments can be handled responsibly. Depositing funds in a separate account, keeping accurate records, planning for redemptions, and promptly issuing any refunds will help you gain the benefits of upfront payments while avoiding the pitfalls. Your customers and business will both be well served.

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Best Practices for Managing Upfront Payments

To responsibly handle finances from mobile order upfront payments, implement transparent pricing models and use the funds specifically for operating costs. Invest in accounting software to properly track funds and allocate them to the appropriate budget categories.

Track Prepayments and Redemptions Closely

Monitor your prepayment balance regularly to ensure you have enough funds to meet redemptions as they occur. Keep a running total of prepayments received, redemptions made, and the current prepayment balance. Reconcile this with your bank statements to catch any discrepancies. This close tracking will help you manage cash flow and identify potential issues early.

Consider Restricting Prepayments During Slow Periods

If redemptions significantly outpace prepayments during slow times, you may need to limit or suspend prepayments temporarily to avoid cash flow issues. Monitor sales and redemption trends closely to determine when and how long to restrict prepayments. Communicate any policy changes transparently with your customers.

Set a Budget

Establish a budget for how you will spend the upfront payments. For example, you may allocate a portion for product inventory, a portion for staff wages, and a portion for marketing. Stick to the budget to avoid overspending the funds, which could impact your cash flow if upfront payment revenue declines.

Reconcile Regularly

Reconcile the upfront payment account with your accounting system at least weekly to ensure all transactions are properly recorded. Look for any discrepancies in the balances and make corrections immediately. Regular reconciliations help prevent accounting errors that could become more difficult to identify if left unaddressed for too long.

Refund Customers Promptly

Process any necessary customer refunds for unused upfront payments promptly. Keep records of all refunds issued in your accounting system and reconcile the upfront payment account balance accordingly. Failure to issue refunds or properly record them could be seen as poor customer service and impact your reputation and customer loyalty.

By following these best practices, you can gain better control and oversight over the upfront payments received through your mobile ordering app. Responsible management of these funds will help ensure your coffee shop's financial health and sustainable growth. Implementing the proper procedures and technology solutions provides transparency for how you handle customers' payments.

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Setting Up Proper Accounting for Upfront Payments

To responsibly handle finances from nonrefundable upfront payments through your mobile app, implement prudent accounting practices. For transparency and accountability, create a separate ledger specifically for these transactions. This allows you to track income from subscriptions, and gift cards, and store credits individually to gain insights into how customers use these payment methods.

Establish a Dedicated Business Bank Account

Opening a distinct bank account devoted solely to upfront payments streamlines record keeping and simplifies reconciling statements. Deposit all funds from e-gift cards, subscriptions, and store credits into this account immediately upon receipt. Disburse from this account as customers redeem mobile orders or make in-store purchases using their gift card or store credit balance. At the end of each month, reconcile this account’s statement to ensure the ledger balance matches the actual bank balance.

Choose an Accounting Method

For upfront payments, select an accounting method suited to your business needs, such as cash-basis, accrual, or modified cash-basis. With the cash method, you recognize revenue when payments are deposited. The accrual approach recognizes revenue when it is earned. Modified cash-basis provides aspects of both. Consult an accountant to determine the optimal method based on factors like business size, industry, and financial situation.

Responsibly handling finances from upfront payments builds trust, ensures accurate record-keeping, and provides insights to optimize your mobile ordering program. With prudent accounting practices in place, you have the foundation to gain valuable knowledge about your customers and continue improving their experience.

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Final Thoughts

Handle your mobile order finances with care. Set up a separate account to keep those prepaid funds segregated. Reconcile it regularly to ensure every dollar is accounted for. Automate transfers to your daily operating account so you don't tap that balance. Bring in a financial advisor to determine the best uses for that float to limit risk and maximize gains. Most importantly, communicate with your customers about their prepaid balances, and deliver the experience they paid for. Mobile ordering brings convenience, but also responsibility. Follow these steps, and you can turn this new revenue source into lasting rewards for your business and community.

Check out Ethereal Cafe's case study to learn how to run your cafe like a bank, similar to Starbucks.

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